Analysts and economists spent the last six weeks crunching numbers in an ultimately futile attempt to project the likely scope of the malaise associated with global containment protocols in place to arrest the spread of COVID-19.
The fact is, such number crunching is largely an exercise in futility. Some types of data (PMIs, for example) have been rendered almost wholly meaningless, and the “hard” data points simply reflect the reality of economies in total lockdown. 26.5 million lost jobs in the US is perhaps the most poignant example, but there are many more.
One of the most important things to understand about the current situation is that the timing was terrible. If it seems like I rehash this every weekend, it’s because I generally do, only this time, I wanted to use the familiar talking points to highlight the latest data from the CPB World Trade monitor.
First, let me just recap two hugely important visuals for those who may have missed them previously.
The following shows the IMF’s updated projection (in red) for global growth in 2020. The fund is calling this recession “The Great Lockdown“.
Next, recall that the World Trade Organization now sees world merchandise trade plunging by between 13% (optimistic case) and 32% (worst case) this year due to the pandemic. “Nearly all regions will suffer double-digit declines in trade volumes in 2020”, the WTO warned, on April 10.
When you roll up those projections and plot the net easing impulse (i.e., number of central bank rate hikes minus rate cuts) for 2019, you end up with the following visual. Please note the chart title and subtitle.
Global growth (in blue) was the most sluggish since the crisis last year. Global trade (in orange) contracted for the first time in a decade in 2019. And central banks were already aggressively deploying scarce ammunition in an effort to bolster the global economy (represented by the pink line plotted on the left scale).
On any number of occasions over the past three months, I’ve been keen to reiterate that the timing of the most acute public health crisis in a century is particularly bad. The visual above shows you why.
With that in mind, note that the latest data from the Dutch government planning agency CPB, shows world trade contracted 1.5% in February from the previous month. (The CPB publishes a World Trade Monitor every month on behalf of the European Commission. It takes two months for the figures to become available.)
That is not good news. It marked the second consecutive month that trade volumes decreased by 1.4% or more.
Those red bars on the chart do not look like large declines, but obviously, January and February data doesn’t capture the time period during which most major western economies were in lockdown mode. Additionally, take note of the pink line in the chart. That’s just the six-month trailing average, and it underscores that global trade was the weakest since the financial crisis headed into the pandemic.
It’s also worth noting that, on a YoY basis, February’s decline was 2.6%, the largest since the GFC. “World trade volumes showed a significant decline in February of -2.6% year on year [as] all regions were in decline”, ING said, lamenting the figures.
“Factory outages in China reduced export and import volumes, which heavily weighed on the world trade figure”, ING went on to write, warning that “despite a fierce decline globally, the full extent of the COVID-19 crisis is still not reflected in these numbers [as] most ships take about a month to reach western Europe and the US, meaning that the decline in Chinese exports in February won’t affect European and US import figures before March”.
Using the NBER official start date (June 2009), the CPB’s data indicates that January-February marked the first time since the longest expansion in US history began that global trade contracted 1% or more in consecutive months, on a MoM basis.
I’ll say it again: There is never a “good” time for a pandemic. But the timing of this one is particularly unfortunate.
“This [data] does not show the current situation, but the situation in February”, CPB is careful to emphasize. The next release for the CPB World Trade Monitor is scheduled for May 25.
The best way to secure world peace is from international trade.
What I worry about the most ( in regard to this issue) is that China, Germany, Russia and EM enter into trading agreements that diminish global standing of USD as the world’s reserve currency.
Ok- go ahead…. tell me I am crazy.
Not crazy, the destruction of the United States is nearly complete. All we need is 4 more years of the Anti-Christ.
Kissinger said this first, at least in my hearing. The more people have to rely on each other the less they can afford to fight. Follow the money.
December 2018 was the wake up call.
Ever since Trump initiated the trade war with China I have been bearish on the markets.
But after the 2018 “crash” the Fed showed that they could head-off any market uncertainty, and we rose steadily into 2020. At that point the we got the trade deal, the economy started to see some green shoots, and I started to think that it was time to resign myself to the fact that the trade war really hadn’t mattered, and really wouldn’t matter going forward. Ie time to be bullish despite IMF forecasts and dips in international trade.
With COVID-19 we have an externality that has obviously shocked markets and disrupted economic fundamentals. Yet the trade war is never mentioned as an underlying source of underlying weakness. I cant recall a single time CNBC or Bloomberg has mentioned it.
Does this prove that the trade war really was a nothing-burger that should have been entirely discounted, at least while there wasn’t a once-in-a-century economic shock? It seems like if there had been no COVID-19, the market was ready to start another significant leg higher.
Reading H’s many posts (and just following the trajectory of the economy and policies) it’s clear that equities outpaced valuations (i.e. ignoring the post Tax Cut sugar high tapering) by using the Fed interest rate cuts as an excuse to gamble even more with leverage (if it’s someone else’s free money and liquidity has been trained to chase higher returns without “risk”)…
and that if it wasn’t Covid19 (which is one of the worst) some other “Black Turkey” (maybe an Oil oversupply/price-war crash?) event would have revealed the fragility.
One question is whether technology (3D printing, AI, etc) will facilitate a new “globalism-light” decoupling of economies?
Maybe accelerating populist nationalism protectionism (while the FAANGM monopolies create their own fractured-digital-one-world landscape for digital citizens)…
And don’t forget we really are approaching the point of no return on global warming and faster than you think. This lull in a shut down of the world’s economies and stay at home orders could be the last time a lot of people see a blue sky over their cities.